Compared to other markets, the world’s second largest recorded music market is very different – at least in respect to digitization. Whereas the digital music segment is booming in other large markets, it is shrinking in Japan according to the latest report of the Recording Industry Association of Japan (RIAJ). In 2013, the total digital music sales were ¥ 41bn (EUR 290m) compared to ¥ 54bn (EUR 383m) a year before – a drop of 23 percent. The main reason for this surprising decrease is a shrinking mobile music market that lost 56.7 percent of its volume from 2012 to 2013. The drop was even more dramatic if we look back to 2008, when mobile music sales accounted for ¥ 79.9bn (EUR 566.0m) – fivefold in value than in 2013. The main driver for the sales drop was not – as might be supposed – the shrinking market for mastertones and ringback tunes, but tremendously falling single track download sales on mobile phones. Whereas mastertones and ringback tunes sales decreased by 75.9 percent and ¥ -21.8bn (EUR -154.4m) respectively from 2008 to 2013, the decline of mobile single tracks download sales was even more severe with 83.7 percent and ¥ -39.9bn (EUR -282.6m) respectively in the same period. We have to take into consideration, however, that RIAJ does not count downloads from smartphones and tablets as mobile music downloads, but as desktop downloads from the Internet, which strongly increased in the past few years. The value of single track downloads on the Internet was ¥ 14.8bn (EUR 104.8m) in 2013and Internet album download sales were at ¥ 14.8bn (EUR 104.8m) resulting in a growth of both segments of about 150 percent compared to 2008. Since the current value of Internet music downloads is much lower than the former volume of the mobile music segment, the total digital music sales have decreased in the past five years. In addition, the Japanese music streaming market is still underdeveloped. Spotify is expected to launch its service this year and other streaming services still evaluate the market potential in Japan.

Since the physical recorded music market in Japan also declines, the total music sales has been falling for more than a decade. RIAJ, however, does not report sales figures for physical music formats, but production values. Thus, we cannot assess the total music sales for Japan, but only the overall production value of CDs, vinyl discs and other physical formats such as music cassettes, SACDs and music DVDs. Thus, we can observe that the production value of physical music carriers has nearly halved since 2000.

The Japanese recorded music market, thus, is characterised by particularities which will be highlighted in the following analysis.

The Recorded Music Market in Japan, 1990-2013

In a long-term perspective we can observe a fundamental change of the recorded music market in Japan. The production value (in Yen) of recorded music has increased due to a prospering CD segment until 1998. When the CD market was saturated the production value started to fall despite the increasing popularity of music videos. With the advent of digital music sales – reported for the first time for 2005 – the decline came to halt. In the following two years, the growth of the digital music market compensated for the loss of the physical segment and enabled a modest increase of total production value. In 2008, the digital music sales peaked at an all-time high of ¥ 91.0bn (EUR 644.6m). Then the digital music market started to shrink. This resulted in a fall of digital sales to ¥ 41.7bn (EUR 295.5m) in 2013 – the second lowest figure since 2005.

Oddly enough, the production value of CDs has been stabilized at the ¥ 200bn mark since 2010. RIAJ even reported an increase of 7.7 percent from 2011 to 2012. Since the production value of physical music carriers does not mirror the concrete sales value – in contrast to digital music, where the sales value equals the production value – we have to be careful to assess the market value. Nevertheless, we can conclude that despite the massive decline of the production value (-55.5 percent since 1998) the recorded music market in Japan is still dominated by CD sales and other physical music formats. According to the production values reported by RIAJ, the digital music market accounts merely for 13.3 percent of the overall market.

An in-depth analysis of the digital music market highlights why the Japanese recorded music market is still on decline whereas other markets seem to recover. In Japan, mobile phones became very popular before they spread in Europe and in the US. The consumers in Japan did not only intensively download mastertones and ringback tunes on their mobile phones but mainly single music tracks. Whereas 22.7m single tracks were downloaded in 2005, the number exploded to 143m four years later – a plus of 531 percent –, which resulted in a total value of ¥ 49.4bn (EUR 350.0m). In the same year, merely 42.4m single tracks valued ¥ 6.5 bn (EUR 46.1m) were desktop downloads from the Internet. The value of album downloads of ¥ 3.1bn (EUR 22.0m) played a relatively minor role. With the emergence of smartphones and tablets, which RIAJ categorized as computers, the sales value of digital music downloads on conventional featured phones dropped dramatically. The mobile single track sales decreased by 84.3 percent from ¥ 41.7bn (EUR 295.5m) to ¥ 7.8bn (EUR 55.3m) in the period of 2009 to 2013. Despite the booming smartphone market, the increase of 127% to ¥ 14.9bn (EUR 105.8m) for single track downloads from the Internet could not compensate for the loss in the mobile music market (fig. 2).

Since mastertones and ringback tunes sales have decreased by 73.6 percent from ¥ 26.2bn (EUR 185.6m) to ¥ 6.9bn (EUR 48.9m) in the same period, the digital music market in Japan shrank against the global trend. In the period from 2009 to 2013, total digital music sales dropped by 54.2 percent from ¥ 91.0bn (EUR 644.6m) to ¥ 417bn (EUR 295.4m).

The revenues from music subscription services, thereby, played a modest role. They were valued at ¥ 3.1bn (EUR 22.0m) in 2013 – threefold more than in 2009. Although more than 30 digital music services are listed for Japan in the latest IFPI Digital Music Report, popular music streaming services are rare.[1] Spotify, Deezer and rdio still evaluate the potential of the Japanese streaming market and are currently not available there.

The download of digital albums seems to be unusual in Japan too. In 2013, 6.6m albums were downloaded on the Internet (incl. smart phone and tablets) and a mere of 17,000 on featured phones, which sums up to ¥ 6.9bn (EUR 48.9m) in value. Although the digital album sales have grown by 121 percent since 2009, this segment accounts for just 17 percent of all digital music sales. The digital music market was still dominated by 56 percent single track sales and by mastertones and ringback tunes sales, which have nearly the same volume than digital album sales. The market segment of music subscription is still modest with a share on 8 percent in 2013, but will be expected to grow in the near future (fig. 4).

A turnaround in the Japanese recorded music market depends on several factors. It will be crucial how Japanese music consumers adopt music streaming services. If they will further buy CDs and other physical formats as well as pay for music downloads, then the recovery of the market is around the corner. On the other hand, if they switch from the ownership to the access model, we can expect a further shrinking recorded music market in Japan. As in other markets, the existence of considerable cannibalization effect of music streaming on physical sales and music downloads will decide also in Japan, if the market will be stabilized or not.